Fill a Valid California 587 Form

When individuals fill out the California Form 587, Nonresident Withholding Allocation Worksheet, several common mistakes can lead to potential issues or processing delays. Awareness and careful attention to detail can help avoid these pitfalls.

1. Not including the Private Mail Box (PMB) number in the address field: If using a PMB, it’s crucial to indicate “PMB” followed by the box number in the address field. This mistake can lead to misrouted or lost correspondence.

2. Incorrect entity type selection: Payees often mistakenly check the wrong box for their entity type in Part II. It’s important to accurately identify whether you are an individual/sole proprietor, corporation, partnership, limited liability company (LLC), or estate or trust, as this affects the processing of the form.

3. Entering inaccurate Taxpayer Identification Numbers (TINs): Providing an incorrect Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), Federal Employer Identification Number (FEIN), California Corporation number, or Secretary of State (SOS) file number can result in processing delays or denial for backup withholding credit.

4. Misreporting payment types in Part III: Payees sometimes incorrectly report the type of payment they are receiving, particularly differentiating between services, goods, or a combination thereof that are provided within and outside of California. This misclassification can affect withholding requirements.

5. Failing to properly allocate income between services performed inside and outside California in Part IV: Accurate allocation is necessary to determine the correct amount of withholding. Errors here can result in under or over-withholding.

6. Omitting the withholding threshold amount: The first $1,500 of payments made during the calendar year are optionally subject to withholding at the discretion of the withholding agent. Failing to consider this threshold can lead to unnecessary withholding.

7. Incomplete or unsigned certification in Part V: The form requires certification under penalties of perjury that the information provided is true and correct. An unsigned or incomplete form is invalid and will not be processed.

By carefully addressing these common mistakes, individuals can ensure smoother processing of their California Form 587 and avoid unnecessary delays or issues with their nonresident withholding allocation.

When dealing with the complexities of nonresident taxation in California, particularly with the Form 587 for Nonresident Withholding Allocation, several additional forms and documents may often accompany or be necessary in conjunction with this form to ensure compliance with the state's tax laws and regulations. Understanding these documents can provide a clearer picture of the obligations and procedures for both the withholding agent and the nonresident payee.

• Form 588, Nonresident Withholding Waiver Request: This form is used by nonresident individuals or entities to request a waiver from the mandated withholding requirements. If approved, it significantly alters the withholding obligations on payments made for services, royalties, rents, or other income sources from California sources.
• Form 589, Nonresident Reduced Withholding Request: This form allows nonresident payees to request a reduction in the standard withholding rate. It is particularly useful for those who can demonstrate that the standard withholding rate exceeds their anticipated California state income tax liability.
• Form 590, Withholding Exemption Certificate: Used by payees to certify their California residency status or that they are otherwise exempt from nonresident withholding. This form is crucial for payees who are actually California residents or meet specific criteria making them exempt from nonresident withholding.
• Form 593, Real Estate Withholding Statement: In transactions involving California real property, this form serves to calculate and report withholding on payments made to nonresidents. It is an essential document for real estate transactions, ensuring compliance with state tax obligations for property sales.
• Form 593-C, Real Estate Withholding Certificate: This certificate is completed by the seller of California real property and given to the buyer or other paying agent to withhold a specified amount for state income taxes. The form is critical in real estate dealings to ensure proper withholding and remittance of taxes on real estate transactions involving nonresident sellers.

Each of these forms plays a vital role in the broader context of California's taxation of nonresident income, ensuring both compliance with state tax laws and the proper administration of tax obligations related to payments made to nonresidents. By navigating these forms alongside the Form 587, withholding agents and nonresident payees can more effectively manage their tax responsibilities and reduce the risk of noncompliance with state tax regulations.

The California 587 form, a Nonresident Withholding Allocation Worksheet, shares similarities with the Form 593-C, Real Estate Withholding Certificate. Both forms are essential for managing withholdings in California, yet they cater to different transactions. While the 587 form focuses on nonresident payments for services, the 593-C form is specific to real estate transactions, ensuring appropriate withholdings are applied to payments made to nonresident sellers of California property.

Form 590, Withholding Exemption Certificate, is another document with similarities to Form 587. Form 590 is used by individuals or entities to certify their California residency or exempt status, thereby negating the need for withholding on payments. Such a form contrasts with the 587 form, which primarily addresses nonresident withholdings. Both ensure compliance with state taxation laws but from opposite statuses of residency.

The Nonresident Reduced Withholding Request, known as Form 589, serves a similar purpose to the 587 form by addressing withholdings for nonresidents. However, Form 589 specifically allows nonresidents to request reduced withholding rates, compared to the 587 form's broader scope of allocating withholding amounts based on the payment's connection to California activities.

Form 588, Nonresident Withholding Waiver Request, parallels the 587 form as both are used by nonresidents in relation to California source income. While Form 587 helps determine the appropriate amount to withhold, Form 588 can be used to request a complete waiver of withholding, offering a potential path for nonresidents to avoid withholding altogether under specific conditions.

Form 594, Nonresident Withholding Annual Return, and the 587 share a link through the withholding process on payments to nonresidents. Form 594 is used to report and remit withholdings for the year, essentially summarizing the outcomes of individual transactions that might have initially been detailed through Form 587 worksheets over the tax year.

Form W-9, Request for Taxpayer Identification Number and Certification, while a federal form, operates in a complementary fashion to the California-specific Form 587. Form W-9 is often used to collect the taxpayer identification number (TIN) necessary for reporting payments to the IRS, similar to how the 587 form might gather such details for state-level withholding and reporting.

The Backup Withholding form from the IRS showcases a parallel function to the state-level Form 587. Both forms address withholding requirements, albeit in different jurisdictions. Backup withholding at the federal level ensures taxes are collected on certain payments, akin to how Form 587 regulates withholdings on nonresident payments for California source income.

Form 1099, a series of IRS documents for Miscellaneous Income reporting, intersects with the purposes behind Form 587. The 1099 forms report various types of income to recipients and the IRS, which may include payments subject to California withholding per the guidelines established in Form 587, illustrating how federal and state tax obligations often overlap.

Form 541, California Fiduciary Income Tax Return, bears relevance to Form 587 in contexts where trusts or estates make payments to nonresidents. While Form 541 deals with the income reporting and tax liabilities of fiduciaries, Form 587 might be used to determine and process withholdings on payments those entities make to nonresident beneficiaries or contractors.

Form 100S, California S Corporation Franchise or Income Tax Return, relates to Form 587 from a corporate perspective. S corporations might use Form 587 to manage withholding on payments to nonresident shareholders or independent contractors, ensuring adherence to state tax laws similarly to how they report their income and franchise tax obligations through Form 100S.

When filling out the California Form 587, Nonresident Withholding Allocation Worksheet, there are specific actions you should take and others you should avoid to ensure the process is completed accurately and in compliance with state regulations. The guidelines below can help both withholding agents and nonresident payees navigate the form properly.

• Review the entire form before starting. Understand each section to provide accurate information.
• Ensure the withholding agent completes Part I. This section is crucial for identifying the agent responsible for withholding.
• Check the appropriate boxes in Part II and III. Nonresident payees should accurately identify their entity type and the nature of the payments they're receiving.
• Provide all requested identification numbers. Whether it's an SSN, ITIN, CA Corp. no., FEIN, or SOS file no., these details are essential for proper processing.
• Accurately allocate income in Part IV. Detailing payments expected for services within and outside California helps determine the correct withholding amount.
• Attach a withholding waiver if applicable. If the FTB has granted a waiver, including a copy with Form 587 is necessary.
• Sign and date the certification in Part V. This action attests to the veracity of the information provided.

• Omit any sections or lines that apply. Skipping relevant parts of the form can lead to inaccuracies or processing delays.
• Forget to update the withholding agent with any changes. If circumstances change, promptly inform the withholding agent to adjust withholding accordingly.

Understanding the requirements and diligently following these dos and don'ts can facilitate a smoother process for both withholding agents and nonresident payees dealing with California source income and its associated withholding requirements.

There are several misconceptions surrounding the California Form 587, officially known as the Nonresident Withholding Allocation Worksheet. Understanding these misconceptions is crucial for individuals and businesses that deal with nonresident payees in California. Here's a look at some common misunderstands and the truths behind them:

• Misconception 1: Form 587 is only for nonresident individuals.

  In reality, this form is not solely for individual use. Businesses, estates, trusts, and other entities that make payments to nonresident individuals or entities for services performed in California also use it. This includes corporations, partnerships, and limited liability companies (LLCs).

• Misconception 2: Withholding is optional for all payments to nonresidents.

  While it may seem that withholding is discretionary, once payments for California source income exceed $1,500 in a calendar year, withholding becomes mandatory. The initial $1,500 threshold allows for optional withholding at the discretion of the withholding agent.

• Misconception 3: The form is needed for every transaction with a nonresident.

  Form 587 is valid for the duration of the contract or series of payments, as long as the facts originally reported do not change materially. Therefore, it's not necessary to submit a new form for every payment unless there's a significant change in the relationship or the nature of the payments.

• Misconception 4: Only payments for physical work done in California require Form 587.

  This form also applies to payments for services, rents, lease payments, royalties, prizes and winnings, and other California source income paid to nonresidents. It’s not limited to just physical or manual labor performed within state boundaries.

• Misconception 5: Any type of income paid to nonresidents is subject to withholding.

  There are specific types of payments not subject to withholding, such as payments for goods or materials provided to the payor, services performed entirely outside of California, and payments to California residents or entities with a permanent place of business in the state.

• Misconception 6: Form 587 also covers the sale of real property in California by nonresidents.

  For transactions involving the sale of California real estate by nonresidents, Form 593-C, Real Estate Withholding Certificate, is used instead of Form 587. This form is specific to real estate transactions and has different requirements.

By clarifying these misconceptions, payors can ensure compliance with California's withholding requirements when engaging with nonresident payees. It's also important for both parties to stay informed about the specific situations that necessitate withholding to avoid penalties and to ensure the correct handling of their tax obligations.

When completing the California Form 587, it's crucial to understand that it is designed for specifying how much income should be withheld for tax purposes on payments made to nonresidents. Here are some key takeaways to guide you through the process:

• The form is required for allocations of nonresident withholding on payments for services, rents, royalties, and various other income types sourced from California.
• It is the responsibility of the withholding agent (the payer) to complete Part I of the form, which captures the payer’s details.
• Nonresident payees, including individuals and entities, must complete and return the form to the withholding agent before any payment is made, specifying their income allocation in California versus income earned elsewhere.
• No withholding is required if the services are performed entirely outside of California or if the payment is solely for goods.
• The form helps in determining if the payment to a nonresident exceeds the $1,500 threshold, which necessitates withholding.
• If the payee is granted a withholding waiver from the Franchise Tax Board (FTB), this must be attached to the completed Form 587.
• It’s important for the payee to check the correct entity type and payment type on the form to ensure accurate withholding calculation.
• The completed Form 587 must be retained by the withholding agent for a minimum of four years and be available upon request by the FTB.
• Changes in the facts reported on Form 587 require the payee to submit an updated form to the withholding agent, who must assess the need for withholding reassessment.
• Under penalties of perjury, the payee certifies the truth and correctness of the information on Form 587, agreeing to inform the withholding agent promptly should any reported facts change.
• It's also noted that completing Form 587 does not eliminate the necessity for the payee to file a California tax return and pay any taxes owed.

Remember, the instructions for completing and submitting Form 587 offer guidance on how each part should be filled out and detail specific situations that may affect how withholding is calculated. When in doubt, consulting with the FTB or a tax professional can provide clarity and help in complying with California’s tax withholding requirements for nonresidents.